In this Robinhood review, every aspect of the Robinhood trading experience has been reviewed to provide the prospective investor with an unbiased account of what to expect from an upstart and mobile-first brokerage that lowered trading fees across the industry.
Who is Robinhood?
Robinhood was incorporated with the SIPC (Securities Investor Protection Corporation) in 2013 and were a relatively unnoticed player in the financial markets until the pandemic hit and suddenly low-cost and mobile trading became all the rage. With Robinhood’s simple and easy to understand user interface, and $0 cost stocks, ETFs, and options trading, they were positioned in the right place at the right time to profit from exploding interest by a cadre of newly formed pandemic day-traders.
Robinhood also introduced one of the easiest ways to get into the exploding cryptocurrency markets, with $0 explicit fees (the fees are baked into the quoted spread, a controversial practice). Robinhood offers stalwart cryptocurrencies such as Bitcoin and Ethereum, but also listed up and coming coins like Shiba Inu (SHIB) and Polygon (MATIC).
Who is Robinhood Financial LLC?
Robinhood is listed with FINRA and the SEC as both a broker and a dealer (broker-dealer in common parlance). This means they can trade your stock on the NYSE or NASDAQ directly without going through a middle man. According to the rules for best execution setup by the SEC, Robinhood is obligated to route your trade to the best possible fee arrangement at another broker if that is beneficial to you the customer.
Who owns the Robinhood broker?
Somewhat unusually for a SIPC registered broker-dealer, Robinhood has two individual co-owners: Vladimir Tenev the CEO and Baiju Bhatt the Chief Creative Officer.
- Simplicity of use
- Easy on-boarding to cryptocurrency trading tools
- No account or trading minimums
- Minimal on-app research available
- Investments limited to Stocks, ETFs, Options, and Cryptocurrency.
- Limited social contact between users to discuss trades
Robinhood product range
The core product offerings of Robinhood couldn’t be simpler:
- Stocks Mutual funds
- ETFs Futures trading
- Options Foreign Exchange
- Crypto Currencies IRA, 401k retirement accounts, Roth and any other tax-advantaged accounts
- Margin trading*
*(Requires Robinhood Gold Account Subscription)
Robinhood Stocks and ETF trades
One strength Robinhood has is getting new investors invested in stocks and ETF’s as fast as possible. Opening an account is much faster on Robinhood, and if you want to open an account and immediately be trading stocks and ETFs Robinhood could be a good option for you. They have agreements with banks that allow up to $1,000 to be immediately available for stock trading and ETF purchases by Robinhood.
This simplicity is also a major weakness of Robinhood, because on the mobile app there are no technical indicators available. On the Web Robinhood does a little better, with some basic technical indicators like moving average and exponential moving averages.
You can buy stock in three clicks in the Robinhood mobile app, which is a plus for absolute newcomers to the capital markets and a downside for all other capital participants.
Robinhood Options Trading
The Robinhood platform was the first firm to offer free trades on options trades (less small amounts required by regulation). Other online brokers all offer options at the lowest for $.65 cents per “leg” of the option trade.
There has been speculation that Robinhood can offer commission free trading on options because they “sell” your order flow to professional hedge funds that “front run” (trade right below or above your trading price), given this Robinhood charges for options trades are not really “free” the price is simply hidden in the brokerage services offered by Robinhood. This practice is called Pay for Order Flow (PFOF) and is technically illegal.
However all other trading platforms (E*Trade, TD Ameritrade, etc) engage in the process to offer “$0” trades on products. Robinhood may have gone too far with offering Options Trading for $0.00. Other firms still offer $.65 centers per “leg” of the option, and the Securities and Exchange Commission (SEC) opened an investigation into Robinhood for PFOF (Payment for Order Flow) for misleading customers using options data in September, 2020.
The options data within the mobile app is simply abysmal, only offering buy and sell costs (with Payment for Order Flow) baked in. The trading app on the Web is again marginally better, with some basic technical information provided for free. However, unlike almost every web trading platform that offers options trading, Robinhood does not offer scenario analysis or even a basic P&L calculator.
The use case for options trading on Robinhood is essentially using the built in leverage in a put or call to speculate on one price direction. For instance, if Robinhood users believe one stock might be rising sharply soon, they beginner investors will simply buy a call which has leverage built in.
Robinhood Crypto Investing Accounts
Robinhood has a basic list of Cryptocurrency trading assets available, including Bitcoin, Ethereum, Dogecoin, Litecoin, Polygon, and a few others. The trading tools available for crypto assets are the same as for the other assets traded on Robinhood. There is no account minimum for cryptocurrency trades within the Robinhood Crypto account.
Robinhood Customer service
The customer service consists of an email address and by putting your cell phone in a “queue” where they will call you back in 30 minutes.
It has been two hours with no call-back, this a huge problem for customer support if you miss your trade entrances and exits due to a system issue that you have no control over.
When I reached out a call back on Customer Support I was promised a call in 30 minutes. It’s been an hour and still haven’t received a response.
This is a huge negative, in case there are problems with a trade or the brokerage account a huge customer service delay can make you sit that and watch trades go against you and helplessly lose money.
A comprehensive list of Robinhood fees can be found here
The fees for Robinhood across each asset (Stock, ETFs, Options, and Crypto) are dead-simple — $0.00. Whether the fees are baked into the bid and ask spread because they have sold your data to a hedge fund is a controversial topic and the SEC has opened an investigation.
Robinhood has a program for free stock for new accounts, offering $225 for each new account opened.
The only other monthly fee Robinhood charges is $5/month for a Robinhold Gold Account account with Level II quotes and up to $1,000 in margin trading.
There are no account fees outside Robinhold Gold, which is a positive for new investors.
Are there any special offers available for new Robinhood customers?
Robinhood has a program for free stock for new accounts, offering $225 for each new account opened if you can sign someone else up you will receive another $225 up to $1,000.00.
Opening a Robinhood account
How easy is it to open an account with Robinhood? Are there any restrictions?
Opening an account to trade mutual funds through Vanguard only takes 5 to 10 minutes if you tocks ETFs for Robinhood, you simply connect your bank account to the app and you can begin trading immediately.
Almost all other online brokers take 2-5 days to “settle” your cash in their accounts before you’re allowed to trade them.
Does the broker have any help guides, or further educational sections on the site to help users better understand the broker and investing in general?
Robinhood offers extremely rudimentary educational resources which define what “a stock” is (ownership in a company).
Given the amount of 20 million Monthly Active Users, there is no excuse for Robinhood to provide guides that at least reach the level of intermediate trading education to protect new trading accounts especially the margin account information which is vital for new trader to understand the consequences of leverage.
Is Robinhood Safe?
This is a tough question to be answer because Robinhood is still owned by two private shareholders who are not mandated to release financial information about this company.
They do have more than 20 million active global users, so unless they are running an absolute fraud behind those number Robinhood should be safe to use.
Questions I get asked about Robinhood
How does Robinhood fund my account so quickly so I can start trading in 30 minutes?
Robinhood has relationships with major banks where Robinhood assumes the risk of account deposits.
Does Robinhood require an account minimum.
Only Robinhood Gold requires $1000 in your account for margin purposes. All other standard Robinhood trades do not require an account minimum.
Does Robinhood trade penny stocks or stocks on the “pink sheets”?
No, Robinhood only offers trades on the NYSE or NASDAQ.
What happens in cash management account accounts with money left over from trading shares?
Robinhood gives you two choices: You can have the cash stay in your account and do nothing. Or you can have Robinhood “sweep” the uninvested cash into the Robinhood cash management account where it will earn a slight interest rate. Note that part of this cash management account makes Robinhood a decent return from cash management Robinhood.
Does Robinhood trade mutual funds for $0.00?
No, Robinhood does not trade mutual funds of any kind for any price or fee.
How do I contact Robinhood?
Robinhood customer support is nearly useless as all they provide is a form which will have Robinhood call you back. During active trading that can be extremely frustrating if you have an active trade that you need to get in or out of.
How to deactivate your Robinhood account
Simply sell all your assets, and then wait the 2-5 days for the cash to “clear” in the bank before it’s available. Notice how getting into an account is nearly instant, while leaving the platform takes 2-5 days.
Who is a Robinhood broker suitable for new investors looking for no commission fees?
Robinhood is exclusively suitable for new Robinhood customers ready to trade relatively small amounts of stocks are $0.00 commission with very fast account setup times and minimal trading platform support.
Final verdict: is Robinhood any good?
Robinhood does have some positives, it might be the fastest way to go from opening an account trading your first trade of stock in five minutes. If that speed is important to you, then Robinhood advisory or brokerage services could be the way to go.
However, since Robinhood is so clearly offered to new investors who probably shouldn’t be jumping into active trading within five minutes of opening their first brokerage account, it is hard to call this a positive. Standard assets like mutual fund or fixed income securities are not offered which is a major negative.
There is almost no education or research available on the Robinhood trading app, however Robinhood has announced a Robinhood Gold Member option that does unlock 1,700 updated Morningstar research reports. However, more than 20 million Robinhood accounts have been opened so Robinhood is filling a market desire for some consumers.
As a very barebones, no trading fees brokerage Robinhood fulfills it’s potential. Under any other context or use case Robinhood should be avoided.
Robinhood Frequently Asked Questions (FAQs)
Can I trade fractional shares?
Robinhood recently announced the arrival of fractional share trading, which simply means you can trade a stock for $98.10 (for example) instead of $100.00 even lots
How can I get more research?
Advanced research can be accessed through 1,700 Morningstar reports included with Robinhood Gold for $5/month.